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Gov. Tom Corbett delivers his budget proposal to a joint session of the Pennsylvania House and Senate on Tuesday in Harrisburg accompanied by Pennsylvania Speaker of the House Rep. Sam Smith, left, and Lt. Gov. Jim Cawley, right.

HARRISBURG - After two years of stubborn frugality, Gov. Tom Corbett is poised to loosen the budget belt.

The $28.4 billion General Fund budget that Corbett presented Tuesday to state lawmakers for approval by a June 30 deadline reflects a $679 million - or 2.4 percent increase - in spending from the current year, according to budget documents.

While Corbett's spending plan reflects Pennsylvania's improving fiscal picture, it was his accompanying proposals to gradually increase transportation funding, privatize state-owned liquor stores and earmark those proceeds for education and tie pension savings to increased program spending that stirred the most legislative debate and set this budget proposal apart from earlier ones.

"Now is not the time to be timid in our approach," Corbett told lawmakers. "Now is not the time to cling to old ideas and the status quo."

Corbett proposes to pump $5 billion in new revenue during the next five years into the separate Motor License Fund for road and bridge projects and mass transit.

He would do this by gradually lifting the cap on the state Oil Company Franchise Tax over five years. This wholesale tax is levied on gas distributors and typically passed along to consumers in higher prices.

Corbett would offset this by reducing the state gasoline tax paid at the pump from 12 cents a gallon to 10 cents a gallon, or by 17 percent, over two years as a way to soften the impact on consumers, said state Budget Secretary Charles Zogby.

The transportation plan calls for having vehicle registration renewals every two years instead of the current one year and driver license renewals every six years instead of the current four years starting in 2014.

All these changes would yield $510 million in new transportation revenue the first year of which $300 million would go for state roads and bridges.

"He's (Corbett) playing kind of a Three-card Monte with the (transportation) taxes," said Sen. John Yudichak, D-14, Plymouth Township. Yudichak said the revenue yield is insufficient for the work needed.

Zogby said the proposed spending increases in education and elsewhere are tied to a projected $175 million in savings for the state created by curbing escalating public pension costs.

"If we don't have reform, we don't have $175 million to spend," he said. "We would have to find $175 million in the General Fund to cut because we are not raising taxes."

Specifically, the governor called for putting new state government and school district employees under a 401(a) defined contribution plan starting in 2015, calculating future pension benefits for current employees with a lower multiplier and reducing state government and school district pension contribution rates.

Pension benefits for retirees and benefits already earned by current employees aren't affected under the proposal, Zogby said.

It's risky to build a state budget around a pension proposal that faces uncertain prospects in the Legislature, said Sen. John Blake, D-22, Archbald, the ranking Democrat on the Senate Finance Committee.

The state will face its own costs transitioning to a 401(a) plan for new employees, he said.

The budget includes a $90 million - or 1.7 percent - increase in basic education funding, the first increase in two years but not enough to offset heavy cuts in education aid during the first year of the Corbett administration as federal stimulus money ended.

Corbett proposes level funding at $100 million for the Accountability Block Grant program that school districts have relied upon for the past decade to help pay for full-day kindergarten and expanded early learning programs.

Sen. John Gordner, R-27, Berwick, said this year's budget debate starts off at a better place with the ABG funding, basic education increase and level funding for higher education proposed by Corbett.

Meanwhile, the governor put the spotlight on his proposed $1 billion, four-year "Passport for Learning Block Grant" with anticipated proceeds from liquor privatization. The "Passport" block grant would earmark money for school safety, early education, individual learning and science, technology, engineering and math programs and courses.

The state Capital Stock and Franchise Tax is targeted for elimination by Jan. 1, 2014, while Corbett called for a 10-year cut starting in 2015 in the state Corporate Net Income tax rate, currently at 9.99 percent, to 6.99 percent.

"We would feel better about these proposals if he (Corbett) was also talking about closing tax loopholes that allow the biggest corporations to get away with paying almost no tax in Pennsylvania," said House Minority Leader Frank Dermody, D-33, Allegheny County.

"We will meet the (June 30) deadline," said House Majority Leader Mike Turzai, R-28, Pittsburgh. He said action on pension savings, transportation and liquor issues aren't necessarily linked to the budget timetable.

"My initial reaction is the pension issue is a separate decision from the education funding, just as the liquor question is separate from education funding," said Rep. Mike Carroll, D-118, Hughestown.

Rep. Phyllis Mundy, D-120, Kingston, a legislator since 1991, said Corbett gave "arguably the worst budget speech I've ever heard," one "so full of gimmicks, pie-in-the-sky and spin, it just blew my mind.

"Honestly, I don't think it was longer or shorter than most of them, but there was no substance," Mundy said.

She blasted the governor for ripping the previous administration's use of economic stimulus money and then using a one-time revenue source such as the sale of state liquor stores to fund education.

"We've been here. Under Gov. (Tom) Ridge, we started three-year programs for the school districts to start early childhood education programs. And when those grants went away, the locals could no longer maintain those programs and they evaporated. And Gov. Rendell and the House Democrats put it back on the table and got it done," she said.

Rep. Gerald Mullery, D-Newport Township, said he's been a legislator long enough to know a governor's budget is "the first step in a lengthy process," but said Corbett's plan is built on "uncertain contingencies" such as privatizing liquor stores, pension reforms that are a tough sell and tax reforms that may not fly.

"He's banking on a lot of revenue sources that there's no certainty that they will be available," he said.

Rep. Eddie Day Pashinski, D-121, Wilkes-Barre, said Corbett's increases in funding for education and welfare programs are miniscule compared to his cuts.

"That's like saying I have that 20-foot hole and now I'm going to shovel in five shovels of dirt," he said.

State Rep. Kevin Haggerty, D-112, Dunmore, said Corbett's $10 million for school security falls far short of his $90 million proposal as does his $5.4 billion transportation proposal.

"It just doesn't cut it," he said.

State Rep. Marty Flynn, D-113, Scranton, said he was less than pleased by the budget because the governor basically produced a 2010 budget.

"It's 2010 numbers with a little bit added on for today," he said. "He's making it seem like he's increased funding for education but in reality, it's still in the negatives because of the original cuts."

Rep. Michael Peifer, R-139, Greene Township, praised the governor for doing his best in still-difficult times.

"We're still coming out of tough economic times. The revenues aren't here to do what we need to do. At least he put some initiatives out there in terms of transportation funding that moves us in a positive direction," he said.

The budget proposal also addresses:

- An expansion of a new block grant program for county-run human services programs to counties that want to participate.

- Reduces funding from $12 million to $7.1 million for the Municipalities Financial Recovery Loan Fund that helps financially distressed cities in Act 47.

Corbett would keep level funding at $1.7 million for an early intervention program for distressed municipalities. He would allocate $150,000 to start a new early warning system to identify potentially distressed municipalities and help them become solvent. The early warning system would also be used to produce data and regional help to assist Act 47 municipalities in exiting from that program.

- Boosts state police funding by $14.7 million to train 290 cadets and $6 million to hire 90 civilian dispatchers to help fill the ranks of retirees.

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